Paying for independent school borrowing against house?

[Pollyputthenespressoon]

I’m trying to think through options. We have the first few years school fees saved but am wondering whether it would make sense to borrow against the equity in our house to pay for future years as won’t be able to build enough savings at the same rate over the next period. We own our house outright and it’s worth around £1.5m so I’d imagine it would be 10-15% of value we might borrow.

We are new to independent schools and frankly have never had any kind of debt so this is all quite new to us. I don’t have anyone to ask in my friendship group. Are there financial advisors that help with this kind of thing?

@NeedtostopusingMNsomuch Ha! Ha! Half the thread has been telling me we can’t afford private school at all!

Seriously I was a bit flippant and loose with my wording. Sorry! I get that our income puts us in the top decile of workers in the UK. It’s not a “problem” most people have or which many would even chose to have. We want to do it as it’s the right thing for our child but want to find the cheapest way to do so.

Have you ever had a mortgage before? How did you pay for your current house?

If you are not paying mortgage and you are indeed earning 150k (some 7.5k per month for a single earner, potentially more if you are both working, as your posts seem to indicate) it would appear that the issue seems to arise because of expenses associated with lifestyle choices. Surely that should be the first point of call.

If you have 1 child only and assuming we are talking about a secondary day school in London (nothing points otherwise in your post), we are talking now of just over 2k per month, leaving over 5k to live on.

So maybe you want to consider if you want to borrow equity against the value of your house to maintain your lifestyle?

Yes I would. You’d have a small mortgage and big equity. You should speak to a financial advisor about the best way to invest the school fees so you can withdraw them each year. That way you can also maintain your standard of living. Seems sensible to me

I'd speak to a financial advisor. I suspect a much better investment would be remortgaging and buying a second property, not private school, esp in primary school. If you're set on private school though, I would spend the £1k or so for a good financial advisor/accountant and go through all your options.

@Pollyputthenespressoon
No way. I would never get into debt or take out a mortgage for school fees. If you have to do that then you can't realistically afford private education.
Use the state system and use any spare cash for private tuition.
From experience I'm not sure private is necessarily worth the huge expense.

Ha! You’re definitely wealthy.

Of course she can afford private education! They're clearly pretty wealthy.

Firstly, if I was you I would work out what amount you can afford monthly towards the fees and how much extra you need to borrow rather than all out borrow.

Secondly you will need to speak to a mortgage broker - not sure you can get a mortgage which then pays school fees unless you dress it up as a home improvement or something.

In the old days a Financial Adviser would tell you to get a mortgage as they would earn commission arranging it. They are not commission based anymore and will happily charge an upfront fee for advice. If they have any morals this will be the same advice as PPs on here... that you should be able to pay it out of income and you need to cut your cloth. Do you want to pay £000 for that advice?

I'm interested in why you would want to pay 5% plus remortgage costs of several thousand if you don't have to do so? Of course you may have a second home with a massive mortgage you are not telling us about or a (handbag) addiction, but if you are debt free I don't understand why you would want debt, for the sake of debt, in the current economic climate.

I don’t get this “no way would I take out a mortgage for private school” - most people paying school fees have to pay fees and a mortgage, how is OP’s situation different because she owns a mortgage free property currently?

(Whether or not a mortgage is the most efficient way of raising this money is a separate question)

I would thought with your household income and no mortgage, it would be possible to pay fees out of your income quite comfortably if you look at your outgoings and prune them a bit?

You can easily afford private school.
We have a similar household income but also a massive mortgage.
You don't have a mortgage so can put that money straight to school fees.
You are very wealthy!
Most people do not have a mortgage free house plus savings. Plus the helpful grandparents paying into children's savings
You really do not know how lucky you are.

No mortgage and a £150k income and you can't afford school fees?
What on earth are you spending your money on that you can't spare enough for school fees?

What on earth are you spending your mortgage-free £150K household income on, that you can’t afford school fees?

Borrowing against your house certainly wouldn't be the cheapest option.
On your income, you have what, £6k a month disposable income? So just pay the fees monthly as you go along out of this. For fees of around 8K a term, thats £2K a month.
If you cant afford that, then youre doing some serious spending!

OP hasn't said but maybe they have more than one child? in which case, fees would be pretty tight out of net income if they are in the SE, even with no mortgage.

With your income and no mortgage you must be doing some serious saving / pension pot-building. If not what the heck are you spending your money on?! I genuinely don't understand why you can't afford school fees out of your income. By all means, remortgage a small amount if you want to, but then you'd be paying back with interest and the payments find fit the same place, whether they go to the mortgage or the school.

Your situation is confusing me somewhat!

what the heck are you spending your money on

I wonder this too. £150k household income is high though not eye-watering... but with no mortgage at all?! Where does it all go? Do you have 6 holidays a year or something?

You can definitely afford the fees without borrowing, imo. Unless you have many kids or something. Even the very most expensive schools are "only" 2.5-3k a month, and most give sibling discounts.

Op you asked for tricks and hacks... someone I worked with got a support staff job in a (well known eton-esque) school, taking an ostensibly huge pay cut, but the 50% staff discount on 5 sons. (So in real terms, a huge saving, equivalent to a pay rise).

If you have many kids, it's a genuine option, apply to be a science technician or school receptionist etc. Staff discounts are less generous these days I've found, sometimes only 25-33%, but if you have 4+ kids that's a potential saving of several tens of thousands a year. And easy pickups and drop offs

Edit - I reread your posts and you said "our child" singular. In which case, you can afford not to borrow! Just reduce the skiing to twice a year or something

We earn way less than you and are comfortably paying over £3k a month mortgage, with plenty to spare. You can manage.

Or is this a stealth boast with your £150k pa income and own outright a £1.5m house.

I would in your circumstances. Would you get a decent discount from the school if you paid off several years of fees up front?

Surely the logical thing to do is to pay out of income. From memory, the net monthly on £150k is around £7/7.5k. So £2.5k a month should be affordable if mortgage free. You can then top-up if necessary from what you have saved, until it runs out.

You say you have a few years of fees saved. Assuming ‘a few’ is more than a couple but less than 5(!!), and therefore working on the basis it’s 3, you should be able to cover top-ups plus rises not covered by pay rises for 5 or 6 years I would have thought? Reconsider in 5 or 6 years, but paying interest on £2/300k even at sub 4% seems like a complete waste of cash to me - could be £50k down the drain.

MN wisdom screams 'don't get into debt for private school fees' from people who probably have a mortgage and wouldn't think twice about reading equity for an extension etc. It's the school fees that are the trigger here not the debt. We've done this. We can afford one out of income (£160k combined income) but worried about second child so we've taken out money for a buffer. We may not even use it but at the moment it's earning a nice amount of interest - higher than our mortgage rate. Our LTV is 50% and monthly payment is £1400. Seems fine to me. There will be people on this thread with a higher LTV and higher payment without that cash in the bank.